What Does People’s Bank of China Stake Buy In HDFC Mean?

The People's Bank of China is an existing shareholder with 0.8 per cent stake in HDFC as of March 2019.

Representational Picture (AFP)

New Delhi, April 14: At a time when the world is reeling under the covid 19 outbreak, which has initially started in China as the hotspot, the People’s Bank of China (PBoC) has gone ahead and increased its state in Indian company Housing Development Finance Corporation (HDFC) to 1.01 per cent. What has exactly happened? India’s largest lending major HDFC has informed the stock exchange that PBoC has acquired nearly 1.75 crore shares in HDFC during the quarter ended March. In a further announcement by HDFC vice-chairman and CEO Keki Mistry, the People's Bank of China has been a shareholder in the company and the disclosure has been made now as its stake has hit 1 per cent. It is not the first time that PBoC has brought shares in HDFC but it is an existing shareholder with 0.8 per cent stake in the company as of March 2019. However, it has been disclosed now because the stake has crossed 1 per cent regulatory threshold. There is no law barring investments by the Chinese central bank in any Indian entity. The chinese central bank has been holding the shares over a year and now expanded it to 1.01 per cent. The People's Bank of China holds stakes in companies across the world, including BP Plc and Royal Dutch Shell Plc. What is the value of the stake? PBoC share at 1.01 per cent comprises 17.49 million shares of HDFC which is worth ₹2,976 crore. The stake buy is a secondary market transaction and hence HDFC had no role in the deal. How HDFC shares faring in the market? The stake buy has come through at a time when the share price of the lender is on a decline. The stock prices have fallen over 25 per cent as heavy selling took off in the global markets on concerns about the spread of covid 19 infections. In fact, almost 70.88 per cent stake is held by foreign portfolio investors which include a 3.23 per cent shareholding of the Government of Singapore. Currently, the shares of HDFC are at Rs 1,701.95 per share on the BSE. Does it raise any red flag? It is obvious that a stake buy by any Chinese entity may become a cause of concern as one of the world’s largest economies is rapidly expanding its economic footprint. However, HDFC's chairman Deepak Parekh has clearly mentioned that PBoC has bought the stake on behalf of China's sovereign wealth fund SAFE. There are several sovereign-backed institutions such as Temasek and Abu Dhabi Investment Authority who have invested significantly in Indian companies. Although central banks usually purchase bonds of highly rated companies in other countries but buying an equity stake is not so common among central banks. Others observe that PBoC interest in HDFC should be taken positively as it can hint that the bank is betting on India’s housing market.